Real estate services stocks

sank Wednesday as investors assessed the companies’ vulnerability to the newest crop of

artificial intelligence

applications and tools that threatens to disrupt several industries.

Shares

of CBRE Group Inc. plunged as much as 15 per cent, Jones Lang LaSalle Inc. slid 13 per cent and Cushman & Wakefield Ltd. fell 15 per cent. For all three firms, the moves mark the biggest drop since March 2020 in the midst of the COVID-driven market selloff.

“We believe investors are rotating out of high-fee, labour-intensive business models viewed as

potentially vulnerable to AI-driven disruption

,” Keefe, Bruyette & Woods analyst Jade Rahmani wrote in a note to clients on Wednesday.

Still, the analyst also notes that the selloff “may overstate the immediate risk to complex deal-making, even as the long-term AI impact remains a ‘wait-and-see’.”

The selloff delivers another jolt through a commercial real estate industry that has struggled to regain its footing since the pandemic upended office demand and higher interest rates crushed deal volumes. While the boom in AI has fuelled pockets of strength — particularly in data centres and high-end office leasing — investors are weighing whether advances in AI could ultimately pressure parts of the business by automating tasks and streamlining deal processes.

Companies such as CBRE and Jones Lang LaSalle have sought to cushion the downturn by expanding into property management, valuation and investment sales across sectors ranging from hotels and warehouses to apartments and life-science labs.

On Wednesday, the group was the latest to get caught up in what Rahmani calls the “AI scare trade,” after investors rushed to dump shares of software firms, private credit companies, wealth managers and insurance brokers within the span of just over a week.

The drop in the stocks seems “excessive given limited news flow today,” Barclays’ Brendan Lynch said. The analyst noted that some of the weakness stems from fears that AI will disrupt the job market and commercial real estate demand. “These are pertinent risks, but that hasn’t changed since yesterday.”

The fears came to the fore last week after

AI startup Anthropic

released tools aimed at

automating work tasks

in areas ranging from legal services to financial research. At the same time, analysts and investors have warned that some of this steep selling reflects a knee-jerk reaction and could be overestimating some of the risk.

“The AI threat to the leasing and capital markets businesses is limited,” said Jefferies analyst Joe Dickstein. “CBRE and its peers benefit from meaningful scale, both from data and industry relationships, and their position as the intermediaries for large leases and large transactions is unlikely to change.”

—With assistance from Natalie Wong and Patrick Clark.

Bloomberg.com

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